Bitcoin, the ‘cryptocurrency’, reached a peak of $750 in June 2016 and is thriving like never before. Some even predict it could finally reach mainstream this year. While it is some way short of the dizzying high of $1,216, achieved in late 2013, when it seemed like we were witnessing the beginning of the end of conventional money, doubts remain about it suitability as a currency. The collapse of the prominent bitcoin exchange, MtGox, and an association of the currency fuelling the underground online drug bazaar, Silk Road, have tarnished its reputation and credibility.
However, many still believe in the idea and a new, just as intriguing, development is taking place with the underlying technology – blockchain – that makes bitcoin possible.
What is a blockchain?
Blockchain is a method of recording data - a digital ledger of transactions, agreements, contracts - anything that needs to be independently recorded and verified as having happened. Bitcoin works in the same way, in that every transaction ever conducted has been recorded on a blockchain.
The major difference is that this ledger isn't stored in one place, it's distributed across several, hundreds or even thousands of computers around the world. Everyone in the network can have access to an up-to-date version of the ledger, making transactions transparent enough to allow governments or law enforcement agencies to keep an eye on things.
The distributed nature of a blockchain database also makes it harder for hackers to get in - they would need have to get access to every copy of the database simultaneously to be successful. It also keeps data secure and private as it cannot be converted back into its original data – a one-way process.
If someone attempted to alter the original document or transaction it would produce a different digital signature, alerting the rest of network to the mismatch. In theory, the blockchain makes fraud and error less likely and easier to spot.
Why are banks interested, as well as businesses?
In simple terms, banks keep our money safe and use computers to keep track of who has what. If banks could create a custom-built blockchain to share information, then it could remove the need for middlemen (clearing houses) to speed up global transactions. If costs could be taken out of the system, it should mean cheaper, more efficient services for us i.e. sending money abroad could become almost instantaneous or as easy as sending a text or email.
In financial trades, often verified by a central clearinghouse, a blockhain could take its place and provide each bank in the network its own copy of the ledger. By doing this, transactions could be approved automatically in seconds or minutes, significantly cutting costs and boosting efficiency.
Imagine the use of a blockchain in retail banking, a ‘permission -based version’ that only recognised transactions from a verified list of parties could bring together different customer identity management processes into one record, including everything from mortgage applications to loans and new bank accounts. Rather than having records spread across the business, a blockchain could conveniently bring it all in one place – improving traceability, consistency and privacy of information.
Others are getting in on the action. Some companies see an opportunity to use blockchain to track the movement of assets throughout their supply chains or electronically initiate and enforce contracts. Everledger has developed a permanent decentralised ledger that records the transaction history and certification of over 980,000 diamonds. Normally, a diamond’s history would be documented by paper, which could be lost, stolen or forged. A blockchain of a diamond’s entire supply chain and history is recorded in an accessible, linear and secure way.
It's early days and blockchain remains in the experimental phase inside many large firms and there are few tested use cases but the possibilities are infinite. Investment is being ploughed into its development. Visa, Goldman Sachs, Citi and other Wall Street incumbents joined venture capital firms to pour $488 million into the industry in 2016 while technology firm R3 CEV persuaded more than 40 banks around the world, including Barclays, UBS and Wells Fargo, to join a consortium exploring distributed ledger technology.
We are only beginning to scratch the surface of what is possible and as long as there is a need for trusted data and secure transaction blockchain could become the dominant technology to facilitate communication between multiple stakeholders, from governments and citizens, to banks and customers.
The disruptive power of Blockchain is also becoming apparent to many within the data centre, cloud, colocation and hosting sectors. Using this technology to structure new and innovative FinTech models could lead to an explosion in data centre requirements and could be a catalyst for a new era in business technology.
A future with low-cost, ultra-efficient, highly secure transactions is a mouth-watering prospect for all businesses.
Philip Low is Chairman of BroadGroup. For more information visit www.broad-group.com.